Are You Ready?
There is a new reality in the feeder-calf market: calves that are “black” and “have had all their shots” may not be enough to fill the consumer-minded bill.
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There are fundamental, irreversible changes occurring in the beef industry. The value added market is heading upward, while the commodity market is flat or heading downward. The cattle market is rationalizing, and breeders of above-average cattle will prosper because of it. This is the message that Darrell Wilkes shared with beef producers at the Montana Nutrition Conference and Livestock Forum held this past spring in Billings. Wilkes, the U.S. beef supply systems manager for ABS Global, Inc., explained that in the good old days, the industry had a commodity beef mindset. Demand was eroding and the same class of cattle sold for the same price – there was a $5 per hundredweight (cwt.) spread on calves and a $.50/cwt. spread on fed cattle.
Things are different today. The industry has experienced a decade of demand growth and has adopted a
consumer-product mindset. The price spread among the same class of cattle is larger than ever. It’s not uncommon to find a $25/cwt. spread on calves and a $100/head spread on fed cattle. There are numerous forces that are responsible for this spread in the marketplace, and Wilkes detailed for producers these factors: branded beef, grid marketing, name-brand health programs, name-brand genetics, documentation and verification, and supply chain marketing.
Branded beef. The beef sold today is slotted and marketed under many different brands. There are breed-based brands, packer brands, and store brands. Wilkes says brandsall carry a specific or implied promise – guaranteed tender, natural, humanely raised, stewardship practices,grain-fed, grass-fed, etc. – and not all cattle fit.
Cooler-sorting, he says, is being replaced by supply-chain systems that have a “story” which appeals to consumers. Producers who plan to produce for a branded program need to know the program’s requirements ahead of time.
Grid marketing. This practice has become increasingly popular, especially with the availability of electronic (or instrument) grading. In 1989, 10 percent of fed cattle sold on grids. In 1999, this figure was 20 percent,and today it is now 45 percent. Wilkes shares that electronic grading is helping overcome a major objection to grid marketing, a practice which increases carcass value knowledge for both feeders and producers. Feedlots keep track of which cattle win or lose on ‘the grid’, he says. “They never forget the wrecks and they never forget the home runs!”
Name-brand health programs. These types of programs can also add value at marketing time. Data from Iowa State University reveals that basic vaccination programs – or cattle that “had all their shots” – yield producers an additional $3.40/cwt. But a brand-name health program can pay $6.15/cwt., or an additional $2.75/cwt. Wilkes points out that there has been a natural evolution of health programs in feeder-calf marketing – and the bar keeps rising. There are discounts given for the use of non-modified live vaccinations, and a generic vaccination program is just at par. However, a name-brand integrated modified-live vaccine, mineral, and parasite control program is premium.
Name-brand genetics. Genetics in use from well-known seedstock suppliers are also considered premium. “Black” is not a genetic description, and even breed is not an adequate description for an increasing number of buyers, Wilkes points out.
Instead these players want to know what seedstock program bred the bulls that sired the calves, and how the sires’ EPDs rank within that respective breed. Buyers are seeking as much information as possible because, as stated above, just under 50 percent of cattle are targeted for different grids, each with specific quality and yield grade, carcass and rib-eye-area targets.
Wilkes told producers, “Be prepared to breed for feed efficiency and documented profitability,” and to remember that progeny testing is still the gold standard by which to measure performance.
Documentation and verification. Age and source verification (ASV) of animals is a requirement for beef exported to Japan, and this practice is becoming a feature for domestic branded programs too. Wilkes says packers are paying a $20-$40 premium for ASV cattle. But it only counts if the cattle are verified through a USDA-approved program. Cattle-Fax estimates the ASV premium on 5-weight calves at $22 per head. Wilkes also stresses that ASV has nothing to do with National Animal Identification.
Supply chain marketing. This practice is also widening the price spread for feeder cattle because these systems, such as Power Genetics, fill their pipeline with specific, targeted genetics. Wilkes points out that a supply-chain mindset differs from that of a commodity-system mindset. In a supply chain, the buyers and sellers know each other, and share information for mutual benefit. “It isn’t a fairy tale. The seller wants the highest price. The buyer wants the lowest price. But they each want the other to succeed,” he says.
Accountability is high and suppliers are dedicated. There is a team-approach to success, and long-term relationships develop. The focus is on pounds but also on product to ensure the needs of customers – the packer and its clients – are being met. In a supply-chain environment, there is sustainable profitability.
Compare this to a commodity system that includes generic cattle, low accountability, and anonymous producers with an island mentality. “It’s all about pounds and, over time, producers just break even,” Wilkes comments.
He says, “New marketing options, focusing on documented cattle, are designed to increase competition for the good ones.” Referring to Lists 1 and 2 (Inset A at left), if you were a buyer, which group of cattle would you bid on?
Wilkes notes the importance of documentation, and that cattle are assumed to be just average at marketing time if a producer doesn’t document added-value practices. “If the premium buyers don’t know about your premium
cattle, little is gained,” he says. He adds the cattle market is a free market and that each person decides his or her own course. But he assures that in today’s consumer-driven market, breeders of above-average cattle will prosper and be rewarded for documented quality and added value.A
According to data collected by Superior Livestock Auction, it does pay to add value and marketability to feeder cattle. The information presented here was averaged by Colorado State University frompremiums calculated on 10 of Superior’s largest sales across the U.S. in 2008:
- Source and age verification: $3.70/cwt. premium based on more than 140,000 head
- Non-hormone treated cattle (NHTC): $2.80/cwt. premium
- Certified Natural: $0.34/cwt. premium
- Superior VAC Program – more than 550,000 calves enrolled in ’08. Ranchers vaccinate their calves with approved vaccines using proven protocols.
- VAC 24: $1.97/cwt. premium
- VAC 34: $3.57/cwt. premium
- VAC 45: $8.20/cwt. premium
- VAC PreCon: $9.36/cwt. premium